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Tata Motors in Global Ultra-Low-Cost Car Market
Introduction
The modern car market could be considered a unique phenomenon that guarantees giant incomes for all actors who function in the given sphere. The fact is that the rise of technologies conditioned the increased convenience of vehicles. At the moment, they are more reliable, simple, and available to people. Moreover, the tendency towards the constant improvement of peoples level of incomes also preconditioned the increase in the demand for cars. The combination of these factors resulted in the appearance of numerous companies that are focused on the manufacturing and distribution of cars. There are such giants as Ford, BMW, Toyota which are considered well-known brands that supply their vehicles to states all over the world.
However, the modern market environment could also be characterised by the appearance of new smaller companies that also want to enter this market and count for a certain fraction of income. However, these manufacturers will face numerous problems related to the unique characteristics of the modern car market. That is why the creation of the efficient strategy that will be able to help a company to evolve and run internationally should be considered one of the main tasks needed to guarantee the further development of a new venture. In this regard, the paper is devoted to the investigation of Tatas attempts to enter the global ultra-low-cost car market and the problems it might face.
Background
At the moment, the are several most valuable car brands that determine the peculiarities of the market and condition its evolution (Witzel 2011).
These are Toyota, BW, Mercedes-Benz, Honda, etc. All vehicles manufactured by these companies could be characterised by the high quality, convenience, unique design, etc. (Alderson 2010). Moreover, the above-mentioned brands emphasise this fact by saying that they provide only outstanding cars for their customers. The given approach has numerous advantages and strengths. Its efficiency could be evidenced by great incomes and high level of sales. At the same time, the average price on these cars remains high, and there is a certain social group that could not afford this product (Burke 2016).
In other words, there is a specific market segment that remains unnoticed by large manufacturers like Toyota or BMW. This fact preconditions the appearance of an opportunity for the new market entry. There are several reasons for this statement. First of all, the lack of attention given to the ultra-low-cost segment conditions the low level of rivalry and guarantees stable incomes in case a new entry is successful. Moreover, the target audience is rather broad. People from developing states might want to buy a car, though its high price could serve as the limiting factor. That is why Tatas desire to introduce the cheapest car and sell it in different regions might be considered quite logical. It might contribute to the companys further rise and its becoming a significant actor in the car market.
Tata Motors description
Tata Motors is an Indian corporation that employs about 455000 workers in 85 countries over the world. At the moment, it is the largest Indian company with the level of revenues close to $100 billion per year, and it comprises about 5% of the states GDP (About Us n.d.). The company could be characterised by the stable showings of its evolution and good perspectives awaiting it. The fact is that India has one of the highest places in the rise of the economic sector. It is one of the most fast-developing states that is expected to become the leading manufacturer.
In this regard, Tatas activity could be analysed in terms of a beneficial environment. Besides, to continue its evolution and obtain extra revenues, Tata aims at entering the international market. It will help to obtain new customers and popularise the products manufactured by the company. However, Tata also realises the fact that the level of rivalry in the given sphere is extremely high. For this reason, it introduces a product that belongs to the ultra-low-cost segment of the car market which is disregarded by the majority of the most powerful and popular car brands. Companys officials believe that the exploration of this segment might bring significant incomes and help it to operate under the conditions of the international market successfully (About Us n.d.).
Besides, Tata Nano is a model that is expected to help the company to evolve and attract attention to its functioning. It is described as the cheapest car with a price of about $2,500 per vehicle (Case Study 8.1 n.d.). The unique approach to pricing and its affordability could attract new customers and guarantee the acquisition of a certain competitive advantage needed to win the rivalry and conquer the given segment. However, numerous risk factors should be considered when choosing an appropriate strategy for a new entry and analysing the possible problems that might appear in the course of the implementation of the new strategy.
Reasons for Tatas entering the global ultra-low-cost car market
Several major concerns are impacting Tata Motors and contributing to the appearance of the desire to enter the international market. As stated above, Tata is a fast-growing company that tries to guarantee its further evolution. For this reason, it is interested in the exploration of new markets and the attraction of new customers. The desire to operate in other countries could be considered rather logical. It will attract attention to the companys functioning and result in the appearance of new opportunities for further growth. Yet, the sphere of ultra-low-cost vehicles remains almost unexplored, and Tata could expect the absence of strong rivalry.
Moreover, entry to the new market will also contribute to the broadening of the target audience (Mayer & Pleines 2008). The fact is that even this price for a car remains unaffordable for great masses of population in India. The county is characterised by extreme diversity, and there are both rich and poor people. Thus, the middle class is almost absent (Ghauri & Cateora 2014). That is why Tata Nano still could not be bought by numerous people living in the state. Hence, for the majority of European regions, the price is low, and it might contribute to the increased popularity of this product (The 10 cheapest new cars on sale 2016). The graph below (see Fig. 2) demonstrates that the average price remains high. it means that Tata Nano might be successful
Risks
Additionally, Tata Motors analyses risks that appear when entering a new market and considers them appropriate. One realises the fact that running a new business venture a company tries to eliminate the majority of threats that might appear in the course of the evolution of this project. For this reason, risk assessment becomes crucial for any activity in the given sphere. Besides, when entering the sphere of ultra-low-cost cars, Tata does not face significant risks. In case of success, it will be able to obtain additional incomes and guarantee the companys further evolution and its spread in the states chosen as the areas for sales.
However, if the campaign is not successful, the company will experience losses. However, they will be not crucial as India remains its main market which provides it with stable and significant incomes. The comparatively low risk of this project could be considered another reason that impacts Tatas decision to run internationally and become one of the leaders in the sphere of ultra-low-cost vehicles. At the same time, low risks also contribute to the stable and comparatively high revenues as there is no threat or rivalry or a new entry. For this reason, Tatas desire to operate in this market is preconditioned by the comprehensive analysis.
Tatas strategy
In this regards, to guarantee the efficiency of the process and introduce its products to the international market, Tata Motors managed to create a specific strategy responsible for the further evolution of this direction and conquering a new sphere. Thus, a company realises the fact that in Europe, the USA, and other regions, it has to pay additional taxes for insurance, green gas emissions, etc. This extra spending will contribute to the significant increase in the cost of the car. However, Tata Motors still wants to remain the cheapest car in the given segment. For instance, Chinese or Japanese cars will cost higher and could not be afforded by the potential Tatas customers.
For this reason, the companys strategy is aimed at the creation of a certain competitive advantage which lies the unique pricing strategy and attempts to monitor the market by providing wise responses to the appearance of the potential rival. The efficiency of this strategy could hardly be doubted. Perfectly realising the fact that other companys suggestions might surpass Tatas in quality or more attractive appearance, the company tends to obtain new customer by emphasising the unique combination of quality and price. This strategy is not unique, though it might remain efficient in terms of the modern global low-cost car market which is characterised by the presence of numerous agents which though suggest rather expensive cars.
Competitive advantage
Business model
Therefore, Tata Motors is one of the most powerful Indian companies that managed to cooperate with such well-known brands as Jaguar and Land Rover. At the moment, it might have a significant competitive advantage with is exercised through the specific business model. The fact is that independent suppliers provide 80% of the components needed for the manufacturing of Tata Nano. Moreover, 97% of the vehicle is sourced in India. It means that suppliers that work with the company manage to provide it with the innovative low-cost components that are produced in the region (Shah 2014).
Using this pattern, Tata avoids great payment for shipping and delivery of the needed components. Moreover, it tends to reduce the number and complexity of parts needed for the creation of a vehicle. It also avoids the creation of unnecessary parts that might contribute to the increased complexity of the process. The majority of European companies function following another pattern and their suppliers are distributed all over the world. However, Tata is locally sourced. 97% of parts needed for Tata Nano come from India (Shah 2014). Moreover, these suppliers depend on Tata greatly as the majority of them could function only in India and their products are created mainly for Tata. Furthermore, the company standardises every stage of its value chain to increase its efficiency. Nano suggests its clients new options; however, these do not have a great impact on the manufacturing process. Every new part could be replaced with another one in the shortest terms. For the company, it means that it becomes able to function under different conditions.
Moreover, Tata Motors also adheres to its own and unique distribution model which is created in terms of the existing environment. It uses numerous agents to assure that its products will reach remote rural customers and all services will be suggested in the way that will satisfy their basic needs. This model guarantees the existence of a certain category of customers that bring stable revenues and contribute to the companys further evolution and growth. The adherence to this very model could also be taken as another Tatas advantage as it contributes to its increased efficiency and conditions the ability to work under different conditions. At the moment, the company is one of the most fast-growing in the area, and the paces of its evolution remain high. This fact evidences the importance and efficiency of the chosen strategy and its contribution to further the companys rise.
Price
Altogether, the above-mentioned facts contribute to the acquisition of the most significant competitive advantage which is the extremely low price of Tata Nano. For instance, its main rivals Cherry, Suzuki, Geely suggest their vehicles that cost $5000, $5200, and $5500 correspondingly (Sing & Sirvastava 2010). As we see, the price is twice higher, even because there will be some extra taxes needed to sell Tata Nano in Europe and other states (Healey 2013). Furthermore, these companies are still working on the creation of the vehicle that will be able to incorporate both quality and price. Some of these offerings might be more attractive because of the quality or cars appearance.
However, Tata Nano remains the cheapest car in the segment which is also small and could be used in heavy traffic and complex city environment (Shah 2010). For this reason, the company acquires a certain competitive advantage that could hardly be ignored by its rivals. Finally, another advantage lies in the fact that in India, Tata remains one of the most popular car manufacturers. The majority of its population are not able to afford another car because of its high price or great size. They choose Tata and guarantee stable incomes for the company which could spend on its running internationally.
Screening criteria
Besides, to monitor the company functioning under the new conditions and be able to trace the slightest oscillations of revenues and spending, Tata Motors should also introduce efficient screening criteria that will encompass the most significant companys activities. First of all, it is necessary to monitor the revenues obtained during the first stages of the implementation of the new strategy. The alteration of incomes and spending will show whether a new product is successful or not. In case Tata Nano brings stable and high revenues for the company, Tata should preserve its existing strategy and focus on the increase in the number of suggested cars. However, if there are some problems with sales and customers are not satisfied with the proposed product, the incomes will remain insignificant, and the company should be ready to initiate the change process aimed at the improvement of its functioning (Witzel 2011).
Additionally, it is also necessary to monitor the quality of the cars supplied to different regions. The combination of the price and quality is one of the most important advantages of Tata Nano. It means that the company should give special attention to its monitoring. Under these conditions, it is possible to recommend the precise investigation of customers feedbacks related to the quality and take into account their suggestions that are aimed at the further cars improvement. Finally, it is also crucial to screen the market and rivals activity to be ready to respond to the new challenges that might appear in the course of the markets extension. In case there is a new vehicle that combines quality and low price, Tata Motors should be ready to act in a specific way and create a new more attractive offer. Only under these conditions, the companys entrance in the international market could be successful and will guarantee stable incomes for the company.
New possible regions
Nevertheless, Tata Motors has good expectations related to the success of its new entry. The presence of significant competitive advantage combined with a unique and efficient strategy contributes to a good forecast. First of all, the company aims at the Chinese market as it has some unique peculiarities that will be able to guarantee success. The average income of the majority of the population is not very high. It means that Tatas price will be appropriate for them. Moreover, there are numerous overpopulated cities in China with thousands of cars.
That is why small sizes of Tata will be appropriate for customers living there. Besides, there is also an obvious need for further companys spread. Tata should look for states with a similar environment. Besides, Vietnam, Indonesia, and some other Asian developing states could be considered the companys main priority (Malhotra, Nandi & Mkherjee 2012). The fact is that the market conditions there are similar to those in China. It might guarantee a stable level of incomes and great revenues. In Vietnam people also do not have great salaries. However, there is a tendency towards the states rise which means that the need for vehicles of this sort will also increase. Furthermore, there are some other options for a company.
For instance, it could also provide its cars to post-soviet states which are characterised by the great differences in incomes between representatives of various social classes. Russia is known by the demand for both luxurious and cheap cars (Malhotra, Nandi & Mkherjee 2012). This demand could be satisfied by the provision of Tata Nano for people who could not afford expensive cars. Moreover, the above-mentioned states do not have some extra taxes for CO2 emissions or other safety regulations, and it means that the price will remain almost unchanged and the car will become popular (Oxyer et al. 2008).
Recommendations and conclusions
In general, Tata Motors could be recommended to run internationally because of a set of reasons. First, the current situation at the global low-cost car market could be considered beneficial. The lack of rivals might help Tata to evolve and become one of the most important actors in the given sphere. The fact is that other cars belonging to this very segment cost twice higher. Under these conditions, Tata could become beneficial. Moreover, the existence of the unique business model also contributes to the appearance of good perspectives at the international level.
Being a fully Indian brand, Tata uses suppliers based in this very country to obtain the needed parts and manufacture a vehicle. Additionally, the whole process is standardised and simplified to avoid sophisticated procedures and suffer from extra spending. It means that Tata Motors could make its cars cheap. For this reason, its decision to run globally could be considered a wise strategy aimed at the companys further evolution and growth. Moreover, because of the unique proposal, Tata could function under different environments and in various states (Taylor 2013).
For this reason, it could be recommended to introduce an efficient screening strategy needed to evaluate the current company and markets situation and response to its alterations by either improving the quality of the suggested vehicle or creating a new offering. Only under these conditions, it is possible to predict the further growth and evolution of Tata Motors. In conclusion, being a comparatively young company, it has managed to achieve great progress and gradually becomes one of the most significant actors in the car market (Thite 2013). Trying to conquer the global low-cost car market, Tata creates the basis for its further growth and evolution. This strategy could be considered rather efficient as it might contribute to the acquisition of great competitive advantage.
Reference List
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Shah, S. (2014). Corporate Social Responsibility: A Way of Life at the Tata Group , Journal of Human Values, vol.20, no. 1, pp. 59-74, Web.
Sing, S. & Sirvastava, R. (2010). The Turnaround of Tata Nano: Reinventing the Wheel , The Journal of Business perspective, vol. 16, no. 1, pp. 45-52, Web.
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Thite, M. (2013). Interview with Ratan Tata, Chairman Emeritus, Tata Group , Global Business Review, vol. 14, no. 3, pp. 549-552, Web.
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